Correlation Between BMO Europe and BMO Aggregate
Can any of the company-specific risk be diversified away by investing in both BMO Europe and BMO Aggregate at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining BMO Europe and BMO Aggregate into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Europe High and BMO Aggregate Bond, you can compare the effects of market volatilities on BMO Europe and BMO Aggregate and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in BMO Europe with a short position of BMO Aggregate. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Europe and BMO Aggregate.
Diversification Opportunities for BMO Europe and BMO Aggregate
0.45 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between BMO and BMO is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding BMO Europe High and BMO Aggregate Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Aggregate Bond and BMO Europe is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on BMO Europe High are associated (or correlated) with BMO Aggregate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Aggregate Bond has no effect on the direction of BMO Europe i.e., BMO Europe and BMO Aggregate go up and down completely randomly.
Pair Corralation between BMO Europe and BMO Aggregate
Assuming the 90 days trading horizon BMO Europe High is expected to under-perform the BMO Aggregate. In addition to that, BMO Europe is 2.36 times more volatile than BMO Aggregate Bond. It trades about -0.07 of its total potential returns per unit of risk. BMO Aggregate Bond is currently generating about 0.13 per unit of volatility. If you would invest 3,015 in BMO Aggregate Bond on September 1, 2024 and sell it today you would earn a total of 21.00 from holding BMO Aggregate Bond or generate 0.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Europe High vs. BMO Aggregate Bond
Performance |
| Timeline |
| BMO Europe High |
| BMO Aggregate Bond |
BMO Europe and BMO Aggregate Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Europe and BMO Aggregate
The main advantage of trading using opposite BMO Europe and BMO Aggregate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Europe position performs unexpectedly, BMO Aggregate can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in BMO Aggregate will offset losses from the drop in BMO Aggregate's long position.| BMO Europe vs. BMO Covered Call | BMO Europe vs. BMO High Dividend | BMO Europe vs. BMO Europe High | BMO Europe vs. BMO Covered Call |
| BMO Aggregate vs. BMO Short Term Bond | BMO Aggregate vs. BMO Canadian Bank | BMO Aggregate vs. BMO Aggregate Bond | BMO Aggregate vs. BMO Balanced ETF |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
Other Complementary Tools
| Transaction History View history of all your transactions and understand their impact on performance | |
| Correlation Analysis Reduce portfolio risk simply by holding instruments which are not perfectly correlated | |
| Portfolio Holdings Check your current holdings and cash postion to detemine if your portfolio needs rebalancing | |
| Price Exposure Probability Analyze equity upside and downside potential for a given time horizon across multiple markets | |
| Efficient Frontier Plot and analyze your portfolio and positions against risk-return landscape of the market. |